13 Nov 2019

Biz Byte - OCR expected to hit all time low

From First Up, 5:36 am on 13 November 2019

The Official Cash Rate will be announced this afternoon by the Reserve Bank. It is expected to be one of the toughest OCR calls in years. 

Reserve Bank governor Adrian Orr.

Reserve Bank governor Adrian Orr. Photo: RNZ / Dom Thomas

Economists are divided on what to expect on Wednesday afternoon - one has described as the RBNZ choosing between Nervous Nellie and Steady Eddie. The odds seem to narrowly favour a quarter percentage point rate cut to a record low 0.75 percent.

The decider is expected to be a fairly average-looking near term outlook for the economy . 

Other central banks have held rates steady in the past week - the Bank of England and the Reserve Bank of Australia sat on the sidelines

Earlier this week, Infometrics' senior economist Brad Olsen told RNZ recent economic data had not worsened, but it was not much better either. 

With so few signs of improvement, he doubted the Reserve Bank would want to stay on hold.

"That's for a couple of reasons, one we still haven't got inflation back to that 2 percent mid range and we're not looking like we'll get there anytime soon, and two the latest labour market numbers do look a little bit softer.

"Sure it's only one quarter, but if the bank is supposed to achieve two percent inflation and maximum sustainable employment, it's currently not meeting both of those targets, therefore given how the bank's reacted previously it seems only right that the bank will want to cut further."

"It seems to me to the bank's path of least regret is to cut further now. If the economic conditions deteriorate further then they'll be able to say 'look we did what we could earlier instead of waiting for it to get even worse' and also to say 'even though the economy might be softer in future times, it could've been even worse if the Reserve Bank didn't support it'."